LME Declared New Reforms for OTC Positions in Key Metals

SEATTLE (Scrap Monster): The London Metal Exchange (LME) announced its decision to target off-exchange trades. This follows the recent chaos and nickel crisis on the exchange. The new move will further boost its market surveillance capabilities.

The news release by the exchange says that it plans to force its members to report details of their over-the-counter (OTC) metals position on a weekly basis. The plan is subject to a shorter-than-usual consultation period of two weeks. The OTC activity could have significant impact on wider LME market, which has been recently demonstrated in the recent events in the LME nickel market, it said.

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The opacity of OTC markets in commodities trading has been in focus following the recent crisis. The dramatic increase in margin calls this year have forced regulators to look more closely at commodities markets and the risks posed by them on the wider financial system. Incidentally, the nickel squeeze in March was mainly on account of a large short position, mainly in the form of OTC positions.

The LME has already introduced emergency limits on daily price movements to prevent unforeseen spike in prices. It now looks to expand its oversight of the bilateral deals between dealers and their clients.